The Hydro figures are dampened by challenges in the car and construction industry. Outgoing CEO Hilde Merete Aasheim is waiting for interest rate cuts and better times.
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– The good thing is that it looks like we have reached the bottom, says Aasheim to E24.
On Wednesday, the aluminum producer presented weaker results for the first quarter of the year than at the same time last year, but the figures were stronger than in the two previous quarters.
Adjusted gross operating profit (ebitda) ended up at NOK 5.4 billion in the first quarter, down from NOK 7.5 billion at the same time last year.
One of the things affecting Hydro is the high interest rates internationally, which dampens the order intake from the construction industry. The company is also affected by challenging times in the car industry, which is also partly due to high interest rates and people holding back on spending money.
– Construction is very much driven by economic sentiment, says Aasheim.
– When inflation is high and interest rates are high, you see a slowdown in new projects, she says.
The Hydro share rose somewhat after Wednesday’s quarterly report. The share is roughly unchanged so far this year, and trades at around NOK 68.
– A shock
It has been a long time since the construction market has been as weak as it is now. Demand is historically low in both Europe and North America, according to the aluminum company.
– Is it really that bad?
– Some of the indices we see are almost at financial crisis level, yes, so it is a very low level, says Acting CFO Trond Olaf Christophersen at Hydro.
– For the construction markets, it is a shock with such rapid interest rate increases, and with the inflation of construction costs, he says.
– A certain optimism
Now the Hydro manager is hoping for better times and stronger results.
– This has taken time, says Aasheim.
– But the sentiment now is that with the measures that have been taken to reduce inflation, it is believed that interest rates have peaked. Even though you haven’t seen any interest rate drop yet, you are starting to get a certain optimism again, that things will get better, she says.
This is also reflected again in the metal prices on the London Metal Exchange and on the metal premiums the metal premiumsthe premiums are an additional cost that is added to metals in addition to the spot price, including shipping, insurance, financing, storage and other costsshe believes.
– We have probably seen the bottom now, on construction, she says.
Demanding for the automotive industry
– In a car, it’s a bit of the same. People keep their money when interest rates rise and everything becomes more expensive, says Aasheim.
She points out that before Christmas Germany was in a budget crisis and had to remove its electric car subsidies.
– It has turned out hard for the German car manufacturers. And that has a big effect on our results in extrusion in Europe, especially in Hungary, says the Hydro manager.
Europe’s car industry is also struggling with increasing competition from China.
– The car segment in Europe is also challenged by Chinese car manufacturers, who now account for a third of car demand, but then primarily for the cheapest cars, says Aasheim.
– Even though there are tariffs, the cars are still so much cheaper that they are competitive in price.
There may be an increase in the second half of the year
Aasheim believes it will take some time before the construction industry picks up again.
– The Federal Reserve, the European Central Bank and others who think something about the macro picture say that they believe in an upswing in the second half of the year and towards 2025, says Aasheim.
It takes some time to start construction projects, and therefore the Hydro manager does not expect a quick recovery.
– We will probably see this further into 2024, more at the end of 2024 and into 2025 than tomorrow, says Aasheim.
– And when do you expect an improvement in the car industry?
– Again, it has to do with interest rates and confidence in the consumer market. You don’t think that the interest rate will go up, but the question is when you start taking the interest rate down. And there is a lot of speculation about whether it will come at the end of this year or next year, says Aasheim.
– A weak quarter
In the second quarter of 2022, Hydro’s adjusted ebitda was close to NOK 12 billion. In last year’s fourth quarter, the corresponding figure was only four billion. In the first quarter of this year, the figure was 5.4 billion.
Acting CFO Trond Olaf Christophersen will not specify the level at which Hydro is waiting for the results going forward, but hopes the numbers will rise.
– This is a weak quarter, driven by weak markets. In the long term, we expect that all our market areas will improve, says Christophersen.
He points out that Hydro’s bauxite and alumina business has been squeezed on price and hit by high energy prices over a few years, but that things seem to be improving. Premiums for aluminum have been low, but are ticking upwards again. And the extrusion business is struggling with low volumes due to the market situation.
– We expect higher results when the markets normalize, he says.
